Educational Articles

Stock Screen: Best & Worst Performing Industries - July 8, 2011

Robert M. Greene, CFA
| July 08, 2011

Among the many features found in each week’s edition of Value Line’s Selection & Opinion service is a list of the seven best and worst performing industries over the past six weeks. These rankings can be found on the inside back cover of Selection & Opinion. The roughly 1,700 stocks in the Value Line universe are currently divvied up among 98 industries. Notably, for the purposes of calculating these results, the performance of each stock is equally weighted to the others in its industry (i.e., irrespective of market capitalization). This data also forms the basis for the Relative Strength price charts found on each industry page in The Value Line Investment Survey.

A quick review of the industries on our best/worst performer list can usually provide some insight into the underlying trends driving the broader market. Overall, stock prices have taken a decidedly more positive tack in recent weeks. Two weeks ago, the trailing six-week performance of the Value Line Arithmetic Index stood at –5.6%, but the index is back in positive territory in the current six-week snapshot (as of July 5th), showing a gain of 2.5%. The favorable swing has been helped along by the release of some positive data on the U.S. economy and the progress that has been made in addressing sovereign debt problems in Greece. Overall, these developments seem to have eased earlier concerns that the global economic recovery was beginning to falter. (Note, that our latest list of best and worst performing industries was compiled prior to the release of weak job creation numbers for the month of June, which may yet revive some of the previous doubts about the state of the broader economy if the employment data mark a trend.)

The favorable shift in investor sentiment has no doubt helped to shake up the ranks of our best-performing industries in recent weeks. For much of last month, the list of top performers was dominated by consumers stocks. Industries from our Consumer-Cyclical sector continue to make a strong showing, with the Shoe, Restaurant, Cable TV, and Retail Automotive groups taking four of the top seven spots. The same, however, cannot be said for Consumer Staples, which would be expected to hold up comparatively well in a more challenging economic climate. In one recent week, consumer noncylical industries, including Beverage and Retail/Wholesale Food, held down four of the top seven spots but for now, at least, they have retreated back into the pack. In their place, several names from the Industrial sector have won spots on our roster. In fact, Metal Fabricating tops this week’s list with a gain of 13.3%. Funeral Services and Trucking are in the mix too, posting advances of 9.1% and 7.1%, respectively. Interestingly, the Metal Fabricating industry is a familiar face on our best performing list, having made numerous appearances since last fall. On the other hand, Trucking showed up only about a month ago among the worst performing groups.

Meanwhile, we are turning our attention this week to Cable TV stocks in search of some individual selections from a top-performing industry that readers may wish to investigate further. Starting at the top, you have Comcast Corp. (CMCSK), which has about 23 million video subscribers, making it the nation’s largest cable TV operator. The company’s core cable operations produce strong free cash flow that supports a solid dividend payout, which figures to grow nicely over the next several years. Comcast’s prospects, though, are also closely tied to the progress of a recent acquisition. Early this year, the company purchased a controlling stake in NBC Universal, an entertainment conglomerate operating broadcast and cable networks, film studios, and amusement parks. The addition should provide a lift to earnings, which figure to climb 20% in 2011, while putting the cable operator in a better position to face off against newer competition from the Internet and video streaming.

Elsewhere in the industry, shares of DIRECTV (DTV) may also appeal to a fairly broad range of investors. The company provides satellite-based pay-TV services in the U.S. and Latin America. Its stock has a strong track record for outperforming the broader market, and we like its chances to add to this impressive résumé in the year ahead and over the pull to 2014-2016. The earnings outlook for 2011 certainly seems promising enough to support such a view, with good subscriber growth in both the U.S. and Latin America likely helping to lift earnings by more than 30%. Meanwhile, the stock doesn’t pay a dividend, but cash flow easily surpasses day-to-day operational needs, giving the company the wherewithal to pursue an aggressive stock-buyback program.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.